Stay Positive in Tough Economic Times

It’s all doom and gloom – every kind of media you tap into is pumping out negative news where markets are concerned: “The Debt Crisis in Europe Wostens” or “The US Is Going Into a Second Recession,” etc. etc.

Don’t let yourself be swept up in the negativity – it’s important to put things in perspective and try to see everything as logically as possible

Equity shares and stocks have been volatile throughout the year and the crucial decision investors with these positions now face is: do you sell now and cut your losses or do you exercise some patience and hope for the market to improve in the near future?

Longer-term investors (five years or more) should see the current state of the market as a great opportunity to be buying cheaper stocks and shares, which will provide you with some good growth in the future when the market improves.

These investors have the luxury of choosing an investment portfolio made up mostly of equities.

This asset class has proven over time to give rewarding returns with the effect of compound interest being instrumental in the growth achieved (take a look at the chart below which clearly illustrates this point).

Over the short term (one to three years) the best option is to create a diversified, balanced type of portfolio.

By diversifying amongst the asset classes, (Bonds, Equities, Cash, Listed Property and Income Funds) you will be spreading your risk across a variety of asset classes as opposed to putting all your eggs in one basket.

This will provide you with some sort of buffer when markets decline in value and – equally important – this will help make you more confident in your ability to ride out the tough times.

The following 40-year investment chart (in dollars) shows how the future value of an investment grows most spectacularly in the later years. In this example, half of the future value is earned in the last 10 years.

This is exactly why retirement planning calls for early investments – to put money into an account that can work for 30-40 years to achieve the full advantage of compound interest.

Ultimately, investing is more of a patience game than anything else and the age old saying holds true, “Spend time in the market rather than trying to time the market”.